Guide to Employment Business Regulations 2003 – Supply of Limited Company Contractors

What are the “Agency Regulations”?

The full title of what is commonly called the “Agency Regulations” is in fact the Conduct of Employment Agencies and Employment Business Regulations 2003 but we shall continue to refer to them as the “Agency Regulations”.

When did they come into effect?

The Agency Regulations were issued under the provisions of the Employment Agencies Act 1973 replacing most of the old 1976 Regulations and took effect in relation to all new recruitment services in relation to individual workers on the 6 April 2004.  For all recruitment services supplied under existing contracts the Regulations do not take effect until the 6th July 2004.  In addition, the Agency Regulations do not apply to limited company contractors until 6th July 2004.

How do they affect the supply of Limited Company Contractors?

As stated above the Agency Regulations will apply to the supply of limited company contractors from 6th July 2004 however the limited company contractor has the option of opting out of the Agency Regulations providing they give the employment business (i.e. the recruitment agency) written notice prior to the commencement of the contract assignment. 

What is the effect of opting out of the Agency Regulations?

The limited company contractor will not be required to comply with certain procedural requirements of the Agency Regulations e.g. identity confirmation.  There will also no longer be any procedural requirement upon the recruitment agency to obtain certain information from the client before placement of the limited company contractor. 

In addition, certain contractual amendments need not be applied to the contract documentation to be agreed with both the limited company contractor and the client.

Why would a limited company contractor consider opting out of the Agency Regulations?

Many limited company contractors appear to be taking the view that opting-in to the Agency Regulations may place them in a disadvantage in securing a contract assignment with a particular client.  In particular the additional procedural requirements imposed upon the employment business and the client may delay the evaluation of that limited company contractor relative to a contractor who has opted-out of the Agency Regulations. 

In addition, some clients appear to be concerned about the additional employment risk of limited company contractors seeking to opt in on the basis that by being subject to the Agency Regulations the limited company contractor will be more akin to a temporary employee rather than an independent contractor.   Consequently, some clients may encourage the recruitment of contractors who have opted out of the Agency Regulations.

Certain recruitment agencies are also suggesting an additional on cost to clients where there are additional administrative requirements for managing contractors who have opted in to the Agency Regulations.  This again may disadvantage contractors where clients prefer to avoid the additional on cost.

Some contractor groups have also suggested that those limited company contractors seeking to legitimately challenge the application of IR35 to their services could be more likely to be assessed within IR35 if the limited company contractor is subject to the Agency Regulations.  This is because some view the Agency Regulations as principally applying to protect the supply of individual workers who are similar to temporary employees, which would undermine any arguments of a limited company contractor seeking to challenge IR35.

What is Inspired recruitment’s stance on whether to opt in or opt out of the Agency Regulations?

In accordance with the Agency Regulations, Inspired recruitment is offering all its limited company contractors the choice of whether to opt in or to opt out of the Agency Regulations.

For the reasons stated above, it currently appears that various contractor groups are suggesting to limited company contractors that they opt out of the Agency Regulations.

What does the limited company contractor have to do to opt out of the Agency Regulations?

All limited company contractors who wish to exercise a choice to opt out of the Agency Regulations must notify Inspired recruitment before the commencement of their assignment.

To do so please contact Inspired recruitment where we will issue an opt out notification form for you to complete and return prior to the contract assignments commencement.

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